Employees are rankled and clients concerned about possible distractions at investment firm

Two multimillion-dollar house purchases have rankled employees at Guggenheim Partners LLC and spurred questions from clients concerned about possible distractions at the investment firm’s core money-management operations, according to clients and people familiar with the firm.

One home purchased in May was an $85 million mansion in Malibu, Calif., with Guggenheim Chief Executive Mark Walter as a co-investor in the purchase. A second, $13 million home was bought last year in nearby Pacific Palisades, and Guggenheim distribution executive Alexandra Court subsequently moved in, according to people familiar with the matter.

Both properties were purchased by a Miami company called ABS Capital Company LLC, which is owned by two former Guggenheim managers, according to Guggenheim and ABS.

The real-estate deals weren’t funded by Guggenheim Partners, according to a spokesman for Guggenheim and Mr. Walter, as well as an ABS spokesman. Mr. Walter was among a “small group of partners” buying the Malibu home with ABS, they said. Mr. Walter “is not an owner of ABS,” the Guggenheim spokesman said.

News of the home purchases in June deepened some employees’ resentment over an alleged personal relationship between Mr. Walter and Ms. Court, according to people at the firm. Ms. Court, who was a rising star after building out the firm’s European business, also had laid off staff and imposed new limits on contacts with clients after a promotion last year.

Above, the $13 million home in Pacific Palisades, Calif., that was bought last year. Guggenheim distribution executive Alexandra Court subsequently moved into it. PHOTO: PICTOMETRY

Ms. Court went on sabbatical in June and is now negotiating her potential departure, according to people familiar with matter. Guggenheim declined to comment on her status with the firm. Ms. Court didn’t reply to a request for comment.

Guggenheim’s board reviewed the relationship between Mr. Walter and Ms. Court, people familiar with the matter said. It was unclear if the board took any action as a result.

The spokesman for Guggenheim and Mr. Walter said that “if there were a relationship, the prospect of a nonbusiness relationship would have been fully and promptly disclosed to the appropriate parties at Guggenheim in accordance with established processes and procedures, which then would have been fully implemented, to avoid improper influence or favor.”

Some clients, concerned about Ms. Court’s status, the homes and staff departures, have asked for reassurances from Guggenheim’s money-management arm. The firm has met with dozens of clients since June to discuss these issues, according to people familiar with the matter.

The firm also is facing a regulatory review from the Securities and Exchange Commission over certain investments and disclosures, The Wall Street Journal reported in September. A firm official said at the time that “we are working very closely with the SEC to bring to a close” the matter.

Jack Chee, a senior research analyst at Litman Gregory Asset Management, said he has asked his contacts at Guggenheim about the house purchases and Ms. Court’s current status. One of his main concerns: “A key risk is a deteriorating culture,” he wrote to Litman clients in a July research note.

In August, Mr. Chee made an on-site visit to Guggenheim, where he spent eight hours with the firm’s investment team. He said he came away still confident in the team and hasn’t pulled any money from Guggenheim.

The home in Malibu, above, was bought in May for $85 million with Guggenheim Chief Executive Mark Walter as a co-investor in the purchase. PHOTO: PICTOMETRY

A pension-fund manager who invests with Guggenheim said he was awaiting clarity from the firm. Last week, consultant RVK Inc. had its own visit with the money manager, people familiar with the matter said.

“Clients choose us because of our strong investment process, which leads to industry-leading performance, and our high level of customer service and communication,” said Scott Minerd, Guggenheim’s investment chief, in a statement. “We are extremely grateful for the ongoing loyalty of our clients, and we will continue to do everything in our power that is necessary to deserve that loyalty.”

None of the clients or consultants with whom The Wall Street Journal spoke have moved to pull money from the firm based on their concerns.

News of the two property deals first swept through Guggenheim in June after a luxury real-estate website, Yolanda’s Little Black Book, disclosed that related companies had purchased the two homes. Morale was already low at the investment-management division coming into this year, people familiar with the matter said. Some investment-management employees received smaller annual bonuses earlier this year, those people said.

Also hitting morale was a January letter to staff from Mr. Walter and Andy Rosenfield, a Guggenheim managing partner. The letter warned portfolio managers and other senior staff at the money-management division to follow new rules issued by Ms. Court in 2016 that restricted how they could interact with clients. Messrs. Walter and Rosenfield wrote that violations would affect annual bonuses. “We regard this behavior as insubordinate,” they wrote.

A Guggenheim spokesman said the firm benchmarks its pay policies annually to ensure they are competitive, and its total head count is higher now than it was at the start of 2017.

ABS, the purchaser of the homes, is owned by Juan Ball and Pablo Stalman. The pair had built a private client business within Guggenheim Partners before buying it from the firm in transactions between 2009 and 2016. Mr. Walter was on the board of the main advisory business, Guggenheim Partners Latin America until 2013, according to a company filing in Florida.

ABS has worked before on Guggenheim-related deals. In August 2016, an ABS Capital vehicle called Allerton Funding LLC provided rescue funding to BCBG Max Azria, months before the Guggenheim-owned fashion retailer collapsed. Under a bankruptcy-court-approved plan, Allerton Funding stands to recoup its $55 million loan.

The $85 million home in Malibu’s Carbon Beach previously belonged to media mogul David Geffen. ABS said it also bought a third house adjacent to Ms. Court’s, for $4.6 million, on June 29.